Global Stock Market’s Recovery Helps DAX Open the Week Higher

Last Friday’s U.S. jobs data showed an unexpected drop in employment, leading to concerns of a possible recession.

The market initially reacted with a rally after Friday’s Non-farm Payrolls. Investors perceived that the Fed may cut by 50 basis points instead of 25. But the sensation is growing that the central bank’s action may be simply too late.

Current valuations are high, especially in the AI-tech sector, if there is a contraction possibly the NAS100 will pay the biggest price. While U.S. stocks have rallied on Fed fueled hopes, driving the global stock market, economic data in the U.S. is showing signs of weakness.

The DAX is also driven in part by U.S. performance, but the concerns for investors also include weak data from China. Germany’s largest trading partner is China, which is also the world’s second largest economy.

Overnight we saw disappointing inflation data from China. The PPI showed production prices declined by 1.8% compared to last month’s decline of 0.8%.

The inflation rate YoY is also low at 0.6%, slightly up from last month’s 0.5%. The deflation fear is also propped up by a real estate fiasco and stock market in free fall. Consumer demand is a main concern, retail sales turned negative in June to -0.12%, for the first time since July 2023.

Investors are looking for value in German demand, however, the domestic scenario may not be so rosy either. Last week Volkswagen, Germany’s largest automaker, announced plans to close two plants in the country.

Technical View

The day chart above for the DAX shows a market that is technically still in a bullish trend. The last candles are above the Ichimoku cloud despite the retracement from last week. However, Friday’s candle broke the neckline (diagonal grey line) indicating further lows are possible.

Today’s candle has found resistance at the neckline on current levels. Should the market close above that level the next major resistance is at 18,601 (black line), which coincides with a previous ATH.

To the downside, the market will find support on the cloud and the level of 17,939 (green line), which corresponds to a previous dip. The cloud in the coming days is thin, which indicates the level of support is also weak.

A note of the weakness of the bullish trend is that the RSI didn’t get past 70 on the last bullish leg to the new all-time high.